While the big hotel brands aren’t expected to sink more money into stock buybacks in 2019 compared to 2018, market conditions could decide if hotel real estate investment trusts are spending on assets or stock.

REPORT FROM THE U.S.—Spurred at least in part by 2018’s corporate tax reform, stock buybacks reached record levels last year, and some are expecting the furious pace of returning capital to shareholders to continue in 2019. But it’s unclear just yet how that will translate to the publicly traded hotel companies.

But analysts who cover the hotel industry said it’s unclear how much companies already committed to buying back stocks in late 2018 and how things could play out in 2019.

David Loeb, a former analyst and founder of Dirigo Consulting, said conditions seem good for buybacks, at least on the surface level.

“Stocks are cheap, and when they’re cheap you expect companies to respond to that,” he said.

But he noted it comes down to a balancing act of deciding whether companies feel like conditions will be even better in the near future.

“It’s a great time to buy with a long-term mindset,” he said. “But the risk is they make timing mistakes.”

Loeb said if companies are expecting a more noticeable recession in 2020, it might make more sense to wait.

He said some companies—not just in the hotel industry but broadly—made that mistake in earlier 2018, riding the high of corporate tax reform and expecting continued broad economic growth, only to see markets tumble late in the year.

C-corpsOverall, sources seemed to believe the most likely outcome in 2019 would be for the hotel C-corps to spend the same or perhaps a bit less on stock buybacks, but that would translate to more shares given the drop in stock prices.

“That’s simply because (earnings before interest, taxes, depreciation and amortization) growth will be a little slower,” said C. Patrick Scholes, managing director of lodging, gaming and leisure equity research for Suntrust Robinson Humphrey.

Michael Bellisario, VP and senior research analyst for Baird, said the big question mark among the C-corps is how Hyatt Hotels Corporation navigates its sell-down of owned real estate. Hyatt is roughly two-thirds of the way through its commitment to sell down $1.5 billion in owned assets, and the proceeds of those sales have gone toward a combination of buybacks and acquisitions, including the recent Two Roads Hospitality deal. If Hyatt officials extend that program and increase the total dollar figure, that could mean more buybacks, but that likely wouldn’t hit until 2020.

“We don’t see that (happening) this year,” Bellisario said. “Hyatt likely has two more assets to sell (to reach their initial target). If and when they do that, they might re-up and announce plans to sell another $500 million to $1 billion, but that announcement wouldn’t happen any earlier than the spring, and (those properties) wouldn’t trade until later in the year, meaning the benefit wouldn’t be realized until early 2020.”

Scholes said Wyndham Hotels & Resorts could also be a player in the buyback front, after being sidelined in 2018 amid the various moving parts of a spinoff of the company’s hotels and timeshare businesses, the acquisitions of the La Quinta brand and the corresponding spinoff of that brand’s owned real estate as CorePoint Lodging Trust. With the blackout period done, Wyndham is now free to resume buyback activity.

“Naturally, they’ll have higher volumes,” he said.

REITsThe hotel real estate investment trusts are in a different position, and while some are sitting on healthy balance sheets, it could come down to a choice between buying assets or stock, sources said.

Wes Golladay, VP and equity research analyst at RBC Capital Markets, said several hotel REITs are well-positioned with cash in a way they haven’t typically been late in cycles, noting RLJ Lodging Trust has been successful in selling assets to lower its leverage and companies like Sunstone Hotel Investors and Host Hotels & Resorts have “built big cash positions.”

“They could acquire assets or buy back stocks,” he said.

And that decision on which option is more favorable could come down to asset pricing in private markets versus how the public companies are valued, but from his perspective “private markets are still very good.”

“But they can decide to sell assets and buy back stocks if there’s a big disconnect between the private and public markets,” he said.

Bellisario said REITs are “sharpening their pencils” on the buyback front, and were largely inactive in comparison to the C-corps in 2018. He noted it will be important to keep an eye on fourth-quarter and full-year 2018 earnings reports to note if there was a significant uptick in buybacks during the end of the year, which could inform how things will go in 2019.

“The REITs have a big asterisk because we don’t know what they did in December,” he said.

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